Trading leveraged ETFs can be dangerous, especially when you over-trade or leverage your position size too big for your account. Most of the leveraged ETFs warn about holding these positions long-term and suggest that they should only be used for day trading. Despite those warnings, traders have held these ETFs longer terms.
As a general guideline, trading triple leveraged index ETFs will have a full position using only 1/3 of the portfolio. This assumes that the remaining 2/3rds of your account is in cash or as an alternative trade the Tactical Asset Allocation’s Income Strategy which uses a Dual Momentum algorithm to determine its monthly position. As of July 2021, the income strategy has averaged 8.35% per year for 11 years of history with 0.01 correlation, virtually no correlation, to the S&P 500.
This blog will explore how the Tactical Asset Allocation’s Leveraged Strategy performs compared to just holding UPRO the S&P 500 triple leverage ETF. The first point of comparison is how the buy and hold strategy compared to the Leveraged Strategy. The image shows the US Market Correlation of ProShares UltraPro S&P5000 ETF UPRO is 0.99 or in other words, very correlated with the US market. In contrast, the Tactical Asset Allocation’s Leveraged Strategy has a 0.43 Us Market Correlation, which is just slightly correlated. The Leveraged Strategy has an average 11-year return of 53.18%, as starting balance of $100,000 in 11 years grows to $8,802,856. Several other measures indicate this strategy has advantages like less volatility, outperformed on the best and worse years, only 59% of the max drawdown, and a Sharpe Ratio of 1.28 versus 0.90, which is a measure of the risk-adjusted return.
Sign up for Cromer Wealth Management’s Tactical Asset Allocation membership to get the current allocations. These trades are available to Gold members.
